China jumps to second most liquid market globally in H1 2019

The jump was driven by an increase in both foreign and domestic investment.

August 07, 2019

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China’s commercial real estate market has been the second-most liquid in the world this year, driven by an increase in both foreign and domestic investment.

Commercial real estate transaction volumes in China hit a record high US$25 billion in the first half of 2019, according to JLL. The result was driven by a bumper first quarter, when investment volumes rose 174 percent year-on-year to US$17 billion.

“China is opening up its capital markets to the world,” says Daniel Yao, Head of Research, JLL China. “While there are cyclical reasons for an increase in foreign investment, as some local groups seek to deleverage and sell assets, the new record is an indication of how far the nation has progressed.”

After record investment in the first three months of the year, demand cooled slightly in the second quarter. But targeted stimulus from Beijing to stoke the economy has increased pressure on owners and boosted supply in the investment market.

China has felt the benefit of a foreign pull-back in the UK - typically the world’s second most liquid market historically – amid ongoing Brexit-related uncertainty.

“The market has gradually shifted from one of sellers to one of buyers, with increasing supply and a prevailing wait-and-see sentiment,” says Sigrid Zhou, Research director of Capital Markets for JLL China. “Deep pocket investors are showing confidence in China’s growth by continuing to seek suitable assets.”

In a sign of China’s appeal to global investors, Canada’s Brookfield Asset Management bought for US$1.55 billion the Greenland Huangpu Center, a 1.6 million square foot mixed-use development in Shanghai.

Another recent foreign investor during the past quarter includes Singapore’s CDL, which bought a development in Shanghai, and took a stake in a Chinese developer.

Meanwhile, large domestic players are also sealing major deals with Landsea Group joint venture fund’s recent acquisition of an office property in Shanghai an example of activity.

Much of the activity has been focussed on Shanghai with US$10.9 billion of transactions in the first half of this year, making it the fourth most liquid city in the world, behind only New York, Tokyo and Paris. For the same period last year, Shanghai was ranked 10th.

“Shanghai’s position as a global gateway city has been cemented by the depth and liquidity of its real estate market,” Yao says. “It can compete with any city in the world in terms of quality real estate development, transport infrastructure and the depth of its tenant market.”

Asia Pacific is set to lead the world in terms of growth in real estate transaction volumes, as markets in the Americas flatten out and in Europe continues to be impacted by political uncertainty and changes to retail markets. JLL predicts global transaction volumes will fall around 5 percent to 10 percent this year to approximately US$730 billion.

For China, the second half of this year will follow the same pattern as the first, says Yao. “China’s continued deleveraging will throw up opportunities for both foreign and well-capitalised domestic investors. We expect Shanghai to remain the major focus for investors, while there is continued interest in other first and second tier cities.”